USPTO: No Change to Software Patent Eligibility Examination After CLS Bank

In a memo dated May 13, 2013, the USPTO told its Patent Examining Corps that the Federal Circuit’s decision in CLS Bank v. Alice, Dkt. No. 2011-1301 (Fed. Cir. May 10, 2013) resulted in “no change in examination procedure for evaluating subject matter eligibility.”

On May 10, 2013 the Federal Circuit issued its en banc opinion in CLS Bank v. Alice, Dkt. No. 201. The court’s main per curiam opinion provided, in total:

Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.

The court was sharply divided across six separate opinions.

The USPTO memo provided that several important themes emerged from the various separate opinions:

  •  There was agreement that the test for eligibility is not a rigid, bright line test and must be made by evaluating a claim as a whole, on a case-by-case basis, using a flexible approach.
  • Many of the judges explicitly noted that the test for eligibility is a separate and distinct inquiry from other patentability concerns, particularly novelty and obviousness.
  • It was generally agreed that when evaluating the claim as a whole the claim must be analyzed to determine whether the additional limitations add significantly more, or in other words add meaningful limits, to the abstract idea or law of nature.

The memo concludes by stating that the USPTO will continue to study the decision in CLS Bank and will consider whether further detailed guidance is needed on patent subject matter eligibility under 35 USC 101.

Software patents claims through system claims should still be patentable under the CLS Bank decision because the court was equally divided. An equally divided court provides no majority position with respect to the system claims at issue.



Method of Managing Stable Value Protected Life Insurance Policy Found Not Patentable

Bankcorp v. Sun Life, No. 2011-1467 (Fed. Cir. 2012) [PDF].

Bankcorp sued Sun alleging infringement of U.S. Patent 5,926,792 and 7,249,037. The patents are directed to methods and systems for administering and tracking the value of life insurance policies.  The district court found both patents invalid as claiming an unpatentable abstract idea under section 101. The Federal Circuit agreed.

Background: Life Insurance Policies. The claims are directed to dealing with a particular type of life insurance plan where the policy owner pays additional premiums beyond that required to fund the death benefit and specifies the type of investment assets in which the additional premiums are invested. This arrangement provide certain tax-advantages. However, the value of this type of policy will fluctuate with the market value of the underlying assets, which may pose an accounting problem for owners that must report the values of such policies on a quarterly basis. To address this fluctuation, a third-party guarantor is brought into the mix to guarantee a given minimum book value on the policy.  The patents are directed to methods and systems that use a formula for determining the values required to manage a stable value protected life insurance policy.

Representative claim 9 of the ‘792 patent provides:

9. A method for managing a life insurance policy on behalf of a policy holder, the method comprising the steps of:

generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities;

calculating fee units for members of a management group which manage the life insurance policy;

calculating surrender value protected in vestment credits for the life insurance policy;

determining an investment value and a value of the underlying securities for the current day;

calculating a policy value and a policy unit value for the current day;

storing the policy unit value for the current day; and

one of the steps of:

removing the fee units for members of the management group which manage the life insurance policy, and
accumulating fee units on behalf of the management group.

The ‘037 patent included claims that were substantially similar to claim 9 of the ‘792 patent. The ‘037 patent also contained system and computer readable medium claims that tracked the method claims.

Do The Claims Require a Computer? The Federal Circuit first determined that the system and computer medium claims required a computer. It also determined that the broadest method claims did not require a computer. The court noted that each method claim has a dependent claim that required that the method be “performed by a computer.” Under the doctrine of claim differentiation, “the presence of a dependent claim that adds a particular limitation raises a presumption that the limitation in question is not found in the independent claim.” Therefore, if a dependent claim required the method to be performed by a computer, then the doctrine of claim differentiation would lead one to the conclusion that the independent claim would not require a computer.

Claim Form Not Determinative: Look to Underlying Invention. The court asserted that it must look not just to the type of the claim but to the underlying invention for patent-eligibility purposes. The court found that the system and computer medium claims were no different from the asserted method claims for patent eligibility purposes.

Use of a Computer Also Not Determinative. The court stated, “To salvage an otherwise patent-ineligible process, a computer must be integral to the claimed invention, facilitating the process in a way that a person making calculations or computations could not.” The court found that the computer required for some of the claims of the Bankcorp patents were employed only for the computer’s most basic function, “the performance of repetitive calculations,  and as such does not impose meaningful limits on the scope of those claims.” The court continued to find there was no material difference between the claims invalidated by the Supreme Court in Bilski and the claims in the present case.  Further the court stated, using a computer to accelerate a patent ineligible mental process does not make that process patent-eligible.

Focus on Whether Inventive Aspects are Abstract. The court noted that when insignificant computer-based limitations are set aside from the claims, the question under section 101 reduces to an analysis of what additional features remain in the claims.  The court found that without the computer limitations nothing in the claims remained but the abstract idea of managing a stable value protected life insurance policy by performing calculations and manipulating the results.As a result the claims of the patents were invalid as directed to unpatentable subject matter.

Distinguishing CLS Bank v. Alice. The court distinguished its prior decision in CLS Bank International v. Alice Corporation, Dkt No. 2011-1301 (Fed Cir. July 9, 2012), because in CLS the court found that the computer limitations of the claims played a significant part in the performance of the invention.

Goggle Bids $900M for 6000 of Nortel’s Patents in Bankruptcy Auction

Goggle has bid $900M for Nortel’s patent portfolio, which is at auction in Nortel’s bankruptcy. Goggle said on its blog that it hopes that if its bid is successful that the Nortel patents (1) will create a disincentive for other to sue Goggle and (2) will provide a degree of freedom to operate to its partners and the open source community who have been involved in the Android and Chrome projects.

Google’s asserted reason for the attempt at acquisition–best defenses against patent litigation based on “low quality” patent is to have a formidable patent portfolio–is likely a true motive. The threat of counter-suit by a defendant can be deterrent to a competitor bringing the suit in the first place. However, threat of counter-suit is less–if at all–a factor when the plaintiff is a non-practicing entity. Also, although not asserted as a reason by Goggle, the Nortel portfolio may present opportunities for Google to license some of those patent to others to create a revenue stream.

More Coverage:

“Use” Infringment of a System Requires Control Sufficient to Put System in Service

Centrillion Data Systems LLC v. Quest Communications International, 2010-1110  (Fed. Cir.  Jan 20, 2010) [PDF]

This case addresses the issue of whether infringement may be found for a “use”–under 35 U.S.C. 271(a)– of a system claim, which includes elements in the possession of more than one actor, e.g., the service provider possesses some elements and the end user possesses other elements.

At issue in the case is Quest’s customer billing information systems. Centrilion asserts that Quest’s billing systems infringe U.S. Patent No. 5,287,270. Claim 1 of the ‘270 patent, at a high level, requires–as summarized by the court–a system for presenting information . . . to a user . . . comprising:  (1)  storage means for storing transaction records, (2) data processing means for generating summary reports as specified by a user from the transaction records, (3) transferring means for transferring the transaction records and summary reports to a user, and (4) personal computer data processing means adapted to perform additional processing on the transaction records. Centrillon acknowledged that the claim includes a a back-end system maintained by the service provider and a front end system maintained by an end user.

Quest’s billing system software has a back office system and a front-end client application that a user may install on a personal computer.  When the user sign’s up for the billing software, the software made available to the users electronic billing information on a monthly basis.

Control means ability to put system into service. The court held that to “use” of a system for purposes of infringement “a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.” However “control” is not to be interpreted too narrowly. Control includes, as in the case of NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), the ability to put the system as a whole into service. Therefore, a customer in NTP remotely “controlled” by simply transmitting a message (email)  and it did not matter that the use did not have physical control over the relays of the system.

Customer’s Use. In Quest’s case, the court rejected Quest’s argument that its customers did not use the system because they did not control the back-end processing. Quest’s system has two operations, an on-demand operation and a normal operation. Under the on-demand operation, the user’s request directly generated a query returning data to the user. Under the  normal, operation the system generated reports on a monthly basis that the user could retrieve. The court found that both the on-demand and standard operation of the billing information system was a “use” as a matter of law.  The on-demand operation was a use because the customer controlled the system on a one request to one response basis.  Under the normal operation, the court found that the user controlled the system by signing up initially with the service, which triggered the monthly reports to run. In both modes of operation, but for the customer’s actions, the entire system would never have been put into service.

Quest’s Use. The court determined as a matter of law that Quest did not “use” the patented invention. To “use” an invention, a party must “put the claimed invention into service, i.e., control the system and obtain benefit from it.” The court found that Quest never uses the entire claimed system because it never puts into service the :personal computer data processing means.” In other words, it does not use a front end system required by the claims. Further, “supplying software for the customer to use is not the same as using the system.”

Vicarious liability requires control or direction of actions of another. The court noted the only way to show that Quest used the patented system was if Quest is vicariously liable for the action of its customers so that the use by the cutmers may be attributed to Quest. The court stated that vicarious liability attaches when there is an agency relationship where one party controls or directs the action of another to perform one or more steps of a method claim. The court found Quest was not vicariously liable because Quest’s customer’s are not its agents and Quest did not direct its customers to perform.

“Making” requires combining all the elements of the claim. The court found that Quest did not “make” the invention–under section 271–because Quest manufactures only part of the claimed system and does not make the “personal computer data processing means.”

19% of INC 500 Companies Report Holding Patents

Inc. Magazine reports, in its September 2010 issue that 19% of the companies ranked in the magazine’s “Inc 500” list hold patents. This is reported on page 188 of the print magazine as a part of the CEO survey. On page 126, it is reported that the CEO survey component of the Inc. 500 list comprises data drawn from 304 responses to an online survey of the CEOs of the companies listed in Inc. 500. This post looks at what the 19% figure means and what questions it leaves open.

Inc. lists the criteria used to determine whether a company qualified for consideration in the list. The list ranks companies based on revenue growth from 2006 through 2009. To qualify, the companies had to be generating revenue by June 30, 2008, they had to be U.S.-based, privately held, and for profit. The companies could not be subsidiaries or divisions of other companies.

A number of reasons may explain why more of the companies do not hold patents. First, business operating in some sectors find more value in patents and therefore seek patent protection more than business in other other sectors. Advertising and marketing companies had more companies represented in the list than any other type of business. It is likely business in advertising and marketing, generally, seek patent protection less than say telecommunication companies. According to the graph on page 111 about 24 of the INC 500 companies were in the telecommunications sector, whereas about 60 companies were in advertising and marketing.

Next, patents are expensive to obtain. To qualify for the list, a company must be independent and not a subsidiary or division of another company. It is likely reasonable to guess that independent startup companies, at young as 3 years old, are likely to have less funds available for patent protection. See my post: Pay for a Software Patent Application or a Software Engineer?

INC. does not report the percentage of companies on the list that have a patent application pending at the U.S Patent and Trademark Office (USPTO). According to the USPTO, the average pendency of a patent application is 34.6 months based on FY 2009 statistics. That means from the date a patent application is filed it take, on average, about 3 years for the government to issue a patent on that application. Therefore it is possible that some subset of the companies on the INC 500 list might have patent applications presently pending.

Last the survey related to the INC report does not assess other types of Intellectual Property such as trademark registrations.

I am not sure that we can draw any conclusions from the 19% reported in INC. Many factors influence a companies decision to seek patent protection. Further the long patent application pendency period leaves the possibility companies that do not presently have a patent could have a patent application currently pending.

Software Patent News for January 27th

  • IBM Offers Patent Portfolio Management Software to Clients – [IBM]
    “IBM also announced that, for the first time, it will offer its invention know-how and patent portfolio management software to clients seeking to enhance their intellectual property (IP) management capabilities in support of innovation-based growth strategies.”
  • Mozilla’s VP of Engineering On Patented H.264 Video Encoding
    Mike Shaver stated, “Vimeo and YouTube seem to believe that reliance on proprietary plugins for video is a problem on the web. Mozilla believes that reliance on patent-encumbered formats is a problem on the web. Who’s right? . . .”

Software Patent News for December 28th

  • Abandoning software patents? [Patent Law Blog (Patently-O)]
    ” . . . The Supreme Court isn’t obliged to rule on the patentability of software ideas. Bilski’s patent is a business method patent, not a software patent. So why might the court make a broad ruling which would cover software? For people who are already aware of the legal arguments, [the author, Ciarán O’Riordan, Exective Director of End Software Patents] . . . offer[s] a review of the socio-economic arguments for abandoning software patents. . . “
  • In Defense of Software Patents — [Patent Law Blog (Patently-O)]
    “This article does not argue for or against the patenting of BPMs. Rather, it tries to explain why inventions implemented in software are well within current US Patent Law[3] using examples and analogies that I [the author] believe are irrefutable. It also explains why software should be viewed a machine component of a general purpose computer (a machine). . .”
  • The Bilski Oral Argument [Intellectual Property Colloquium]
    IP Colloquium stages a reading of the oral argument that occurred at the U.S. Supreme Court on the In re Bilski case. The Bilski case raises the issue under 35 U.S.C. 101 regarding what should be patentable subject matter.
  • Microsoft barred from selling Word [ars technica]
    “The US Court of Appeals has ordered Microsoft to drop support for editing Custom XML in Word, essentially stopping the company from selling current versions of one of its flagship products and affirming a $290 million patent infringement judgment against the software giant. . .”

Software Patent News for August 12th

  • Judge orders Microsoft to stop selling Word [CNET News]
    "A judge on Tuesday [August 11, 2008] ordered Microsoft to stop selling Word, one of its premier products, in its current form due to patent infringement. . . .

    [The Court] issued a permanent injunction that "prohibits Microsoft from selling or importing to the United States any Microsoft Word products that have the capability of opening .XML, .DOCX or DOCM files (XML files) containing custom XML . . ."